It is a pipe dream to think the US can ever get back onto the gold standard. - Page 3 - Politics Forum.org | PoFo

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#14868156
Finally a debate based on one of my posts.
I think you-all are missing the point,though.
The point was MMT's claim that it is taxes that give dollars their value VS a claim that is the ability of the US to create wealth that gives the dollar value.

1] In economics only people with money are considered to be able to create economic demand.
2] He is right the bottle of water will always have some value. Even in 30s Germany the Mark had *some* value. My friend has a 1M Mark postage stamp. It took 1 M Marks to send a letter. But Marks had some small value.
3] You were ignoring the cost of moving the bottle of water from 'here' to the guy in the desert.

4] But getting back to the point. I really don't see how the bottle of water having a non zero value proves that it is the ability of the US to create wealth that gives the dollar value. And keeps that value from sinking pretty fast. Look at what happened in the Rev. War. The Contentental Congress printed dollars and spent them, but they fell in value fast. Maybe it was because the Congress could not impose taxes [it lacked the legal power to do so].

It makes sense that the need of adults to get some dollars to pay their taxes will give dollars some value and help dollars retain their value.
OTOH, it isn't clear to me how the wealth of the US would maintain the value of the dollar. Please explain this.
#14868257
B0ycey wrote:The Federal reserve isn't near the top because the US has plenty of reserve @Rugoz. I think that was established when the OP mentioned gold. And sure, the largest economy in the world has plenty of assets. Go figure.

I was discussing Bitcoins the other day with someone I know about the sudden rise in its value. They couldn't understand why it has shot up in value if the general consensus was that it was valueless. I pointed out, the holders of Bitcoin aren't selling and people that want to be part of the phenomena will pay premium to do so. When enough holders want to sell up to get their money back, that is when the price will crash... and it will crash. The same is true with dollars. When the demand for them reduces significantly due to the end of the petro-dollar or nations wanting to get their money back, the US will need to use their reserve and assets to calm traders in Dollars down and gain confident in the Dollar again. So yes, because the US are print happy, I anticipate the return of the Gold Standard.


- :eh:

- There's no reason to believe the US dollar could suddenly lose its role as a reserve currency in the foreseeable future. Even then, you seem to vastly overestimate the benefit that comes with it. All it does is give you a minor interest rate advantage while making your exports less competitive. If everybody gets out of US assets (mostly treasuries) for some inexplicable reason, the dollar would fall, but so what? The US is a huge diversified energy-independent economy. It's not overly reliable on imports and has plenty to offer for export. And what the hell does that have to do with the gold standard?
#14868315
Steve_American wrote:Finally a debate based on one of my posts.
I think you-all are missing the point,though.
The point was MMT's claim that it is taxes that give dollars their value VS a claim that is the ability of the US to create wealth that gives the dollar value.


Actually the value of the currency is based on the ability of private financial institutions to create money on the basis of their ability to lend money at interest to the Federal Government, who's creditworthiness derives from the ability to tax.

The Federal Reserve controls currency issue, while private banks also create money through fractional reserve banking, which is based on their relationship to the Federal Reserve.

This is how the system works, and it's full of rent seekers.
#14868409
@Crantag,
I disagree, the Fed. Res. Bk does not "control" the creation of dollars.
You said that banks create dollars when they make loans, I agree. This means the selling of US Bonds is the creation of new dollars, just like when banks make loans.
Dr. Stephenie Kelton said in the Youtube video I posted a few hours ago that, the rules the Fed. uses with the US Treasury credits the US account with the dollars as soon as the Treasury decides to offer some more bonds or T-bills. The US Gov. can spend those dollars before the bonds are sold. Thus the Treasury "controls" when the new dollars are created by the loans [i.e. sales of US bonds].

I also disagree with you that the ability of banks to create new dollars by making loans helps to maintain the value of the dollar. Under Neo-liberal thinking the more dollars there are the less each dollar is worth. I don't accept that theory, do you? I just don't see the opposite as being true, i.e. more dollars equal a higher dollar value. Or, even causing the dollar to not change in value [not go down in value].

The theory I like is MMT. MMT says that a little inflation [= price rises] is a good thing and a little deflation is a very bad thing; and a deficit of about 4% of GDP every year is a good thing, with more in recessions.
Last edited by Steve_American on 07 Dec 2017 00:37, edited 1 time in total.
#14868540
I didn't say the ability of banks to lend maintains the value of the dollar.

If anything, I said increasing the debt (on which the value of the dollar is based) dilutes the value basis of the dollar. It is at less than a 1:1 ratio though, because of the institutional framework of money circulation, and indeed because barter still does have the ability to obviate currency based exchange (although it's role is negligible except under extreme circumstances).
#14868740
IIRC, the Fed. Res. Bk was created in 1913 after the 16th Amendment was approved.

This means it was set up in a time when the US was on the gold standard.
So, the rules for it were consistent with the necessary accommodations to harmonize with the gold standard.
To my [very limited knowledge] the rules were not changed after Nixon took the US off the gold standard in 1971.

So, it is no surprise that the rules are consistent with the gold standard.
But, now that the US has a fiat currency, the rules could be changed to be consistent with that fact.
The main thing keeping this from happening is IMO the fact that most all politicians still think in terms of the gold standard. They can't say they think another way because they would not get reelected if they said the Gov. doesn't need to pay for all it buys with tax revenue or with money borrowed by selling US Bonds.

And yes, taxes are necessary to avoid inflation, and yes, too much new money would be inflationary. The question is how much is too much? I think it depends on what nation we are talking about, for instance is its balance of payments positive or negative.

Dr. Stephanie Kelton says that currently since 1974 every single time the deficit has gone below 3.9% of GDP for a couple of years the nation has gone into a recession. Every single time. [Emphases is hers.] See the video of her I linked in another thread.
#14868826
Rugoz wrote: And what the hell does that have to do with the gold standard?


Maybe nothing. Perhaps everything. There are a high number of dollars out there. If, for whatever reason, the Dollar was no longer the reserve currency, or, no longer used in commodity exchanges, or, considered a strong reliable economy, the US might need to revert back to the gold standard to retain confidence back into the dollar because of the high number of them. But there are quite a lot of ifs and buts to consider before this would happen.

Nonetheless the way the Trump administration is running its deficit at the moment and spliting its wealth for the select minority, I suspect it is only a matter of time when the US poors debt becomes a toxic asset again and sends the global economy in melt down. How many bailouts can the US afford before they can no longer afford to do so? And remember, the US benefits more than any other nation in terms of global finance. The end of such a system would destroy confidence in the dollar more than any other currency. But at least they have resources and assets to prevent total loss of confidence in the dollar. And that would "maybe" result in the return of the gold standard.
#14868834
Steve_American wrote:I disagree, the Fed. Res. Bk does not "control" the creation of dollars.


Not directly (depending on what monetary aggregate you look at) but it uses all kinds of instruments to influence it.

Steve_American wrote:The theory I like is MMT. MMT says that a little inflation [= price rises] is a good thing and a little deflation is a very bad thing; and a deficit of about 4% of GDP every year is a good thing, with more in recessions.


What's "modern" about MMT again? :roll:

"Little inflation" (2-4%) being good is something every economist would agree with. A fixed deficit rule makes no sense to me.

Steve_American wrote:And yes, taxes are necessary to avoid inflation, and yes, too much new money would be inflationary. The question is how much is too much?


The revenue you can raise with an inflation tax assuming "little inflation" is negligible.
#14868838
Rugoz,
How did you read what I wrote and get that I said to tax inflation?

I just said taxes are necessary. that is all I said. I did not specify what was to be taxed.

Did you watch the video with Dr. Stephanie Kelton? I know what I say carries little weight. What professional economist says should carry some weight.

MMT says that deficits are what lets the private sector have a surplus. That surplus is a huge driver that increases the GDP. Without a private sector surplus the GDP will soon stop growing and this is the definition of a recession, i.e. no growth in GDP.
#14868841
B0ycey wrote:Maybe nothing. Perhaps everything. There are a high number of dollars out there. If, for whatever reason, the Dollar was no longer the reserve currency, or, no longer used in commodity exchanges, or, considered a strong reliable economy, the US might need to revert back to the gold standard to retain confidence back into the dollar because of the high number of them. But there are quite a lot of ifs and buts to consider before this would happen.

Nonetheless the way the Trump administration is running its deficit at the moment and spliting its wealth for the select minority, I suspect it is only a matter of time when the US poors debt becomes a toxic asset again and sends the global economy in melt down. How many bailouts can the US afford before they can no longer afford to do so? And remember, the US benefits more than any other nation in terms of global finance. The end of such a system would destroy confidence in the dollar more than any other currency. But at least they have resources and assets to prevent total loss of confidence in the dollar. And that would "maybe" result in the return of the gold standard.


Ok, for the sake of the argument, let's assume the US just pulled off an Argentina and wants to restore confidence in the US dollar. Introducing the gold standard achieves nothing. First, there's no guarantee that the US would not simply end convertibility as it did in the 70s. A commitment to price stability is just as good, in fact its even better since the price of gold is all over the place. Second, the gold standard would threaten the economic stability of the US and therefore be detrimental to the stability of the dollar.
#14868847
Steve_American wrote:Rugoz,
How did you read what I wrote and get that I said to tax inflation?

I just said taxes are necessary. that is all I said. I did not specify what was to be taxed.

Did you watch the video with Dr. Stephanie Kelton? I know what I say carries little weight. What professional economist says should carry some weight.

MMT says that deficits are what lets the private sector have a surplus. That surplus is a huge driver that increases the GDP. Without a private sector surplus the GDP will soon stop growing and this is the definition of a recession, i.e. no growth in GDP.


- Inflation tax is just another word for monetizing debt. Inflation acts like a tax on those who hold currency. Like any other tax, it comes with a dead weight loss. From the perspective of public economics there's no reason to treat it differently than other forms of taxation.

- I don't watch 1-hour long videos.

- :eh:
#14868855
Rugoz wrote:Ok, for the sake of the argument, let's assume the US just pulled off an Argentina and wants to restore confidence in the US dollar. Introducing the gold standard achieves nothing. First, there's no guarantee that the US would not simply end convertibility as it did in the 70s. A commitment to price stability is just as good, in fact its even better since the price of gold is all over the place. Second, the gold standard would threaten the economic stability of the US and therefore be detrimental to the stability of the dollar.


I think you underestimate the reliability for the US with supply and demand along with the quantity of dollars out there for the velocity of dollars being used and the impact on all of this if the dollars was no longer being used as, 1) reserve currency or 2) commodity exchange. If either of these two things were to occur, it would be like the FED printing Dollars at an over zealous and unsustainable rate and creating hyperinflation due to an over supply of dollars. At that point they might revert back to the gold standard.

Naturally they might return to fiat in the future and end convertabilty again once the finance industry stabilizes. And yes gold does fluctuate, but we are discussing a future scenario (that is likely to occur at the end of the Petro-dollar transaction system) where the dollar was no longer a reserve currency and an economic downturn was taking place and the only way to restore confidence in the dollar was to link it to a commodity. A commitment to price is worth nothing if no one has confidence in your economy (because you have unsustainable debt for the working class that has reduced their spending power to nil).
#14868864
OK, Rugoz,
Tell me how an inflation tax that raises revenue impacts what I said? I said taxes are necessary to avoid inflation. I just don't understand your point.

And how does an inflation tax raise revenue anyway?

And, the point is that the US Gov. is not a person so the rules for persons don't apply to the US Gov.

And to nuts who think the US might have to go back on the gold standard.
Nations on the gold standard must sell their gold holding to all who present the national currency and want gold. That is the definition of being on the gold standard. If there is $15 T in debt and $5 T in cash in the world now and the US has just 200,000,000 oz of gold and gold is about $1000/oz then the US has about $200 B in gold. It can't begin to pay everyone who wants gold. It has less than 1/100th of enough gold to do that. To get onto the gold standard you must 1st assume all banks and insurance comp. in the world loose all their assets and go bankrupt, when the US defaults on the debt and somehow reduces the cash in circulation to just $200 B. The resulting worldwide economic mess would make the Great Depression look like a little economic down-turn. Literally billions would die of starvation and wars.
#14868867
Steve_American wrote:And to nuts who think the US might have to go back on the gold standard.
Nations on the gold standard must sell their gold holding to all who present the national currency and want gold. That is the definition of being on the gold standard. If there is $15 T in debt and $5 T in cash in the world now and the US has just 200,000,000 oz of gold and gold is about $1000/oz then the US has about $200 B in gold. It can't begin to pay everyone who wants gold. It has less than 1/100th of enough gold to do that. To get onto the gold standard you must 1st assume all banks and insurance comp. in the world loose all their assets and go bankrupt, when the US defaults on the debt and somehow reduces the cash in circulation to just $200 B. The resulting worldwide economic mess would make the Great Depression look like a little economic down-turn. Literally billions would die of starvation and wars.

I am not saying that the US should go back on to the gold standard but if it did it would presumably involve a dramatic alteration in the price of gold in dollars first. If an ounce of gold traded at $100million instead of $1000 then those liabilities are more payable.
#14868868
@Steve_American, that is the crux isn't it? Currently the US does not have the supply of gold to return to gold standard even if it wanted to (which would be unwise as they profit greatly from a fiat currency) - not without doing self harm anyway. The dollar relies on a global financial system that requires investors to hold dollars. It relies on a system where nations/businesses need dollars to buy commodities. If that system was to end, the price of dollars will crash. If it crashes below the price of gold it holds, what do you think the US will do?
#14868871
As I said before, SolarCross, you and I will never agree because we have different assumptions about economics.

And you think the US can set the gold price at $100M/oz all by itself? How would it do that? I don't think the US can offer to buy gold at $100M/oz, do you?

So, I called people with your opinion about this "nuts", so you get to call people like me "shits"? I thought we were supposed to be nice here. I thought there were rules in place to prevent posters calling other posters "shits".
Last edited by Steve_American on 07 Dec 2017 16:44, edited 1 time in total.
#14868878
Steve_American wrote:As I said before, SolarCross, you and I will never agree because we have different assumptions about economics.

And you think the US can set the gold price at $100M/oz all by itself? How would it do that? I don't think the US can offer to buy gold at $100M/oz, do you?

So, I called people with your opinion about this "nuts", so you get to call people like me "shits". I thought we were supposed to be nice here. I thought there were rules in place to prevent posters calling other posters "shits".

What I mean is that you can't assume that the current $1000 per ounce will still be in play during a transition of that magnitude, indeed especially in that circumstance. Likely a major alternation in the exchange rate would occur just on the rumour of a return to the gold standard. Then there is the fact that the "gold standard" literally means the US decides how many dollars an ounce of gold is worth, they could initially set it to whatever they want.

The fact that the US still has $200 billion (in current dollars) is kind of a major help, if it wanted to go back a gold standard, it really helps to have gold, lol. In fact pegging a vast number of dollars to an ounce of gold would be brutal efficient way of discharging all the US debt without technically defaulting.
#14868896
B0ycey wrote:I think you underestimate the reliability for the US with supply and demand along with the quantity of dollars out there for the velocity of dollars being used and the impact on all of this if the dollars was no longer being used as, 1) reserve currency or 2) commodity exchange. If either of these two things were to occur, it would be like the FED printing Dollars at an over zealous and unsustainable rate and creating hyperinflation due to an over supply of dollars. At that point they might revert back to the gold standard.


Jesus, where does your obsession with gold come from? In the purely hypothetical case of hyperinflation the FED would have to shrink its balance sheet to restore price stability. That's the (medium-term) goal of monetary policy and incompatible with the gold standard. I repeat: The gold standard is incompatible with price stability as it's commonly understood by economists.

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